Opening the door to community and landlord engagement

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This article was first published on Lexis®PSL Property on 24 January 2019.

Fiona Sawyer, professional support lawyer in the planning team at Herbert Smith Freehills LLP, and Frances Edwards, senior associate and specialist real estate litigator at the firm, point out that although the government’s ‘open doors’ scheme will certainly help reinstate the high street as a destination for the community, the reality is that town centre rents need to be cheaper and action taken to ameliorate the cost of business rates to enable community uses to occupy town centre premises on a longer-term basis.

Original news

The government has published guidance on the ‘open doors’ pilot, a scheme matching landlords with community groups to temporarily fill empty commercial properties. The scheme is designed to help regenerate the high street and support community groups and will take place in five areas across the UK. The government is seeking applications by 14 December 2018, and the application form is included in the prospectus published alongside the guidance.

What is the open doors pilot scheme, and what does it entail?

The open doors pilot is one of the government’s flagship projects, announced as part of the Autumn 2018 Budget and launched by the Communities Secretary, James Brokenshire, on 7 November 2018. It involves matching vacant high street or town centre units with community groups who are looking for space on a temporary, or ‘meanwhile’, basis.

The first phase of the pilot was an invitation to landlords (public and private, including local authorities and major property portfolio holders) to propose premises for five trial areas. This invitation closed on 15 January 2019. Selection of the five pilot areas will aim to achieve a good geographical spread of premises of 1,000 sq ft or less, on high streets or in town centres in areas with above-average vacancy rates. The premises should preferably be available for 12 months (although the government said it would consider a period of six months). Once the pilot areas have been identified, community groups in those areas will be asked to put forward proposals for their use. The intention is to provide space for groups who need or want town centre space but who have difficulty taking on a lease or paying market rents.

The project is being managed on behalf of the Ministry of Housing, Communities and Local Government (MHCLG) by an independent charity, the Meanwhile Foundation, which was set up in 2012 by Brent Council and Locality. The Meanwhile Foundation will match the community groups to the vacant premises. It will take leases of the units and then license the space to the community groups according to their need.

What’s in it for landlords? The government says that there will be no cost to landlords to take part. There will be funding for legal fees and running costs, including utilities and business rates, and up to £25,000 towards set up and remediation costs. The government also says that there will be a significant number of other financial and social benefits to landlords, such as:

insurance costs should be lower;

the property should be protected from squatters; and

it will hopefully enhance the landlord’s reputation in the community.

Once the spaces have been matched to the community groups, the pilot will last for one year from spring 2019 to spring 2020.

What issues does the scheme intend to tackle?

Evidence is rife that the high street is struggling. Technology and changing shopping habits have been driving up internet sales. This, together with high rents and high business rates, has been increasing pressure on town centre retailers to the extent that many retailers, national as well as independent, are struggling to keep stores open. The result is a downward spiral of footfall and occupancy rates. The open doors scheme aims to tackle the impact of this on town centres by providing reasons, other than retail, for people to use the high street. The government is encouraging the repurposing of empty space, on the basis that town centres need to evolve to survive.

What is the expected impact of this on the property market, as well as for retailers?

In 2012, the then Department for Communities, Local Government and Housing (DCLG) ran the ‘Meanwhile Project’ with the similar aim of encouraging temporary occupation of empty town centre retail premises by non-commercial occupiers. Changes have also been made since then to widen the scope of permitted development rights, encourage temporary uses on high streets and improve town centre space to boost vibrancy and footfall. Yet high streets are still struggling.

Will landlords be incentivised to offer meanwhile uses to community groups more readily as a result of this scheme? It will depend. The Meanwhile Foundation has now run several such projects with success, which are described in detail on their website. However, while the financial incentives being offered under this pilot may be attractive to landlords with long-term unoccupied property, and this is a more worthy scheme than many of the rates mitigation schemes that are marketed, many landlords already allow local groups or charities to use their empty properties, and the set-up of this scheme may make it of limited interest. A key disadvantage compared to a standard rates mitigation scheme is that the property must be made available for 12 months (unless an offer of a six-month lease is accepted by the government), during which time a landlord would be hampered from obtaining a commercial rent.

Does the scheme go far enough, or can more be done? Is there anything missing from the scheme?

The open doors scheme is part of a package measures announced by the government at the Autumn 2018 Budget to improve the health of high streets and town centres. ‘Our Plan for the High Street’ also includes a one-third business rates discount for retail properties with a rateable value below £51,000, a £675m Future High Streets Fund, investment in town centre infrastructure and heritage-based regeneration and a new High Streets Taskforce. In addition, the ‘Planning reform: supporting the high street and increasing the delivery of new homes’ consultation was launched, which proposes new and amended permitted development (PD) rights for high street and town centre uses, changes to the Class A use class and new PD rights to extend existing buildings upwards to create new homes. The ‘Planning reform’ consultation closed on 14 January 2019.

Whether or not these measures together will be enough to achieve the government’s aims remains to be seen.

Successful retailers will be looking to their business models to provide resilience in this changing market. As for the Open Doors scheme itself, encouraging community uses to come into town centres will certainly help reinstate the high street as a destination for the community. However, doing so on a ‘meanwhile’ basis will not necessarily change perception of the high street in the long-term—just as a place becomes established in the minds of the community as serving a particular purpose, it will change. The reality is that town centre rents need to be cheaper and action taken to ameliorate the cost of business rates to enable community uses to occupy town centre premises on a longer-term basis. On 28 December 2018, BBC Business News reported that ‘Local councils have spent more than £800m on the purchase of UK shopping centres over the last three years’, buying up town centre space to help regenerate their areas. The BBC says that ‘Bolton has borrowed a total of £100m for its town centre fund as part of a wider £1bn plan to regenerate the town centre’. Perhaps public investment is going to be necessary for communities to save their town centres, rather than relying on the private and charitable sectors.

If the open doors scheme is to be taken beyond the pilot, the extent to which landlords will feel incentivised to join may depend on several factors, such as their long-term plan for the premises, the length of time for which they estimate the premises will remain empty and the characteristics of the local market. One additional incentive for landlords might be to permit some level of rent to be charged.

What other plans does the government have for further engagement in this area?

The government hopes that:

the effects of this scheme will last beyond the life of the pilot;

landlords will see benefits from allowing meanwhile uses; and

more funding will become available from private and charitable sources.

MHCLG is planning to monitor and review the pilot to inform future policy and funding decisions.

Fiona Sawyer is the professional support lawyer in the Planning team at Herbert Smith Freehills LLP.

Frances Edwards has worked in the Real Estate Dispute Resolution team since qualifying in 2002. She has considerable experience in advising on the full range of property disputes from landlord and tenant issues to complex contractual disputes, strategic advice to obtain possession for development, professional negligence, insolvency and disputes arising from fraud. She also acts in relation to business rates disputes. Her clients include property companies, pension funds, corporate and public-sector bodies.

Interviewed by Kate Beaumont.

The views expressed by [Lexis®PSL Property] Legal Analysis interviewees are not necessarily those of the proprietor.

Herbert Smith Freehills LLP is authorised and regulated by the Solicitors Regulation Authority.

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